WEAKNESSES

Still high level of private and public debts, very negative net external position

Duality of labour market, high level of structural unemployment

Large number of relatively unproductive small companies

Fragmented political landscape, national unity weakened by the rise in separatism

RISK ASSESSMENT

Domestic demand continues to drive growth

Spanish economic activity recovered strongly in 2015, partly reflecting the depth of the recession following the financial crisis. Growth was driven by domestic demand, which was underpinned by an improvement in the labour market and restored consumer confidence, combined with lower oil prices and looser credit conditions. Deleveraging in the private sector had only a limited impact on domestic demand (corporate and household debt decreased from 218% to 169% of GDP between Q2 2010 and Q1 2016). Although unemployment remains high, the rate has declined significantly since 2013 to 19.6% in July 2016. The property market rallied from early 2014 onwards, while company bankruptcies began to decrease from Q2 2013. The political parties’ failure to form a new government since December 2015 has so far not affected the recovery. GDP increased from 0.8% in Q2 2016, extending similar gains recorded over the three preceding quarters. Despite the likelihood of a slowdown beginning during the second half year, growth should reach 3% in 2016. Private consumption (almost 58% of GDP) should remain the leading growth driver, while investment should continue to benefit from favourable financing conditions and satisfactory export growth. However, confidence among business managers and consumers has trended lower since peaking in 2015.The current account, which has been positive since 2013, continues to show a surplus. This is due to the fall in oil prices, lower debt servicing costs and healthy exports, notably of services (tourism and business services), amid heightened competiveness resulting from reduced labour costs and a moderate recovery in export markets, including the euro zone, which absorbs 50% of sales.

Healthier companies and banks but heavy public debt

Exporting companies managed to fare well during the crisis. Companies more dependent on the domestic market have started to recover, including in the construction sector. Lower labour costs and the disappearance of loss-making companies have led to a recovery in corporate profitability.
A significant number of measures were taken to rescue the banking sector, which was heavily impacted by a property bubble bursting and the recession. In January 2014, Spain successfully exited the European bailout package which had enabled the recapitalisation of the sector, which saw its solvency reinforced and the quality of its asset portfolio improved. Weak lending activity and persistently low interest rates are nonetheless weighing on its profitability. Furthermore, the privatisation of certain banks was delayed and Spain’s “bad bank” continues to post losses. Moreover, Banco Popular Espaňol S.A. is one of the five European financial institutions which scored the worst results during the stress tests carried out by the European Banking Authority in July 2016.Sovereign risk remains significant despite improving, as illustrated by the continued fall in borrowing costs on the bond market, where 10-year rates eased to 0.9% on 22 September 2016. In August 2016, the European authorities, that ultimately decided not to fine Spain for failing to respect its objectives, granted two extra years for the deficit to be reduced to below 3% of GDP (i.e. 2018). Although the public debt ratio has stabilised, it remains at a high level (almost 100% of GDP).

Fragmented political landscape and persistent separatist tensions

The December 2015 legislative elections marked the end of bipartisan politics. The parliament was finally dissolved after four and half months of unsuccessful negotiations between the four major political parties (PP, PSOE and two new parties, Podemos and Ciudadanos). Fresh elections were held in June 2016, leading once again to a hung parliament. The members of parliament refused to back the conservative leader Mariano Rajoy in forming a government, whereas the socialist party is unable to muster a left-wing majority. If the MPs fail to nominate a government by the end of October 2016, a third election will have to be held in December 2016. Final rounds of talks regarding the national parliament may take place following the result of the regional elections in the Basque region on 25 September and a confidence vote in the Catalonian parliament on 29 September (which reinforces the unity of the separatist ranks). It is far from certain that they will succeed however.

Last update : September 2016

Payment

The Spanish law of late payments in commercial transactions (Ley contra la morosidad en operaciones comerciales) states a general payment terms, which are generally unfulfilled by the companies as well as by the government. The usual terms of payment in commercial transactions exceed the legal terms, being globally accepted by market players.

About the payment means, the bill of exchange is used for commercial transactions in Spain. In the event of default, it offers creditors certain safeguards, including access to the “exchange procedure” (juicio cambiario) introduced by the civil procedure rules under which, based on his appraisal of the documents submitted, a first instance judge (juzgado de primera instancia)will check the “exchange title” has correctly been set up and then will order the payment from the debtor of the principal amount, the late interests and costs, within 10 days and will order a seizure for security (embargo preventivo) on the debtor’s assets up to the outstanding amount. The debtor has 10 days to dispute the ruling.

Without payment or opposition in the prescribed time, the judge will order enforcement measures and if necessary, the judicial representative will carry out attachment.

Where a claim is contested, a court hearing is held to examine both parties’ arguments and a judgement handed down within 10 additional days of said hearing. This is the legal times but really there are delays due to the Court doesn´t carry out this deadline.

Widely accepted though somewhat difficult to obtain, bill of exchange guaranteed by a bank limits the risk of payment default by offering creditor additional recourse to the endorser of the bill of exchange.

The cheque offers similar legal safeguards under the “exchange procedure” (juicio cambiario), in the event of default. The same is true of the promissory note (pagaré), which, like bill of exchange and cheque, is an instrument enforceable by law and, being unpaid, is also recorded in the RAI (Registro de Aceptationes Impagadas).

An outgrowth of the Centre for Interbank Cooperation, the RAI is the most important registry at the national level, where the payment defaults, above 300 €, of commercial companies, are recorded and where banks and other deposit institutions can check a company’s payment record before extending credit.

Electronic transfers via the SWIFT network, widely used by Spanish banks, are a quick, fairly reliable, and cheap instrument, provided the purchaser, in good faith, orders payment. If the buyer fails to order a transfer, the legal remedy consists in instituting ordinary proceedings, or summary proceedings based simply on an unpaid invoice (according Spanish law in order to start this proceedings It should submit original documents: invoices, delivery notes, CMRs, contracts…)

Debt collection

Special clauses included in the commercial contract, the applicable rate since 31st December 2004, is the interest rate applied by the European Central Bank in its most recent refinancing operation performed prior to the first calendar day of the half year concerned, fixed 8,05 percentage points.

Where there is a lack of settlement agreement with the customer, the creditor will initiate a legal collection process by reference to the law on civil procedure (ley de Enjuiciamento civil) which came into force on 8 January 2001 amendment by:

- The Act 13/2009 on 3 November 2009 on the reform of the judicial procedure (ley de reforma de la legislación procesal), in force on 4 May 2010.

This Act granted a higher competency to the judicial representatives (secretarios judiciales) and increased the threshold of monitory and verbal proceedings.

- The Act. 37/2011 on 10 October 2011 (ley de medidas de agilización procesal) effective as of 31st October 2011

The rules cut the time taken up by litigation significantly and gave oral arguments priority over written submissions – the cornerstone of the previous system – even though the authentication of large numbers of documents remains a requirement.

Besides the “exchange procedure”, a seller unable to settle with a buyer out of court may enforce his right to payment through the civil procedure (juicio declarativo), divided into ordinary proceedings (juicio ordinario)for claims over 6,000 € and oral proceedings (juicio verbal),simplified system,for smaller claims.

The aim of this legislation was to speed up delivery of enforcement orders by reducing and simplifying the stages of the old procedure.

The claimant has to explain the facts on which he exercises its right and to support all case documents, in original or certified copies by public Notary, when he files its initial petition.

Prior to the investigation of the case, the judge will summon the parties, during a previous hearing (audiencia previa) just in ordinary proceeding, to attempt at conciliation. In default, the lawsuit will be pursued.

In addition, for monetary, liquid and overdue claims whatever is the outstanding amount, since 31st October 2011 (previously up to 250,000 €), the creditor now benefits from a more flexible special process, the monitory or injunctive procedure, named “juicio monitorio”.

This summary procedure does not require the presence of a barrister or solicitor to file a “petición inicial” prepared with a pre-printed form and submitted to the judge of first instance (juzgado de primera instancia) where the debtor is located, and who may, after reviewing the supporting documents, order the debtor to pay within 20 days.

Without debtor’s answer, the judicial representative will inform the judge in order to confirm the decision which decides in favour of the initial request. The judicial representative will hand down a ruling stating the monitory proceedings closed and passes it on the creditor in order to allow contact the Enforcement Office.

If the debtor disputes the ruling with motivated arguments into a written statement signed by a barrister and a solicitor, the procedure has to be change to ordinary or oral procedure, depending on the outstanding amount.

Established in April 2003, the judicial tax relating to commercial companies, applies, since April 2011, to any sort of civil procedure and contains a fix rate depending on the sort of procedure filed (rate from 100 € to 1,200 €), as well as a variable rate depending on the amount involved (from 1 € to 1 million € a 0, 5 % of the amount and above 1 million € a 0, 25 % of the amount) with a maximum of 10,000 €. Since February 2015 individuals must not pay this tax.